Internet Initiative Japan Inc. November 2010 http://www.iij.ad.jp/en/IR TSE1:3774 NASDAQ:IIJI
Key Investment Highlights １ Top IP Engineering Company in Japan Target Blue-chip and Governmental Organizations ２ in Japan with dominant position Best Positioned in the Growing Outsourcing & ３ Cloud Computing Market in Japan Stable revenue growth from the accumulating ４ recurring revenue ５ Solid Growth Strategy details to follow
TOP IP Engineering Company in Japan The first established full-scale ISP in Japan A group of highly motivated and skilled TOP Level IP Engineers Pioneer of Network Technologies in Japan In-housed development Operate one of the largest Internet Backbone in Japan Fully develop its service and back office facilities • Internet Connectivity & Firewall Service, IP Multicast Delivery Service, IPv6 Service • NetBSD based Router Product Development (SEIL Series) “IIJ” brand among the Japanese IT market Well known for its high engineering skills and network support skills High customer Satisfaction with long term relationship Around 6,500 clients, mainly governmental and large enterprise At the leading edge of IP R&D Company Profile (as of September 2010) IPv6, Mobile IPv6(MIPv6), NetBSD Established December 1992 Distributed and Parallel Processing Platform Number of Consolidated: 1,968 for very large data sets Employees (approx 70% engineers) Participation in world-wide research Listed NASDAQ(IIJI), TSE1(3774) Markets Board Member of “Telecom-ISAC Japan” Large NTT(24.5%), Koichi Suzuki(6.2%), Shareholders Itochu Corp.(5.1%), NTTCom(4.9%) 3
Entrepreneur of Network Technologies Business and Service Development to Initiate the Market FX The first full-scale ISP in Japan Application Cloud In-housed development Development Computing IPTV “IIJ GIO” Platform At leading edge of IP R&D System Operation Large Volume Smart IP Specialists P to P Data Mobile Systems Distribution Integration LaIT RFID Internet GDX iBPS LAN Platform DC M to M Internet Web Managed VPN Gateway Service Anti-spam CDN Solution IP Multicast DDoS MVNE Consumer SEIL SMF IIJ MVNO ISP Wide in U.S. Mobile hi-ho LAN Asia Firewall Consumer Backbone Service IPv6 ISP IIJmio Hope Page IX Service Dial-up SLA service IIJ4U Web Hosting Service 2008 2010 “IIJ Group” 1992 1995 1996 1997 1998 2004 2006 2007 4
Strategic Shift in Business Model From “ISP” to “Total Network Solution Provider” (Revenue, JPY million) ENDURE Internet Connectivity Services Tough economic Outsourcing Service Listed on situation TSE1 70,000 Systems Operation One-time revenue Systems Construction (Include Equipment Sales) (FY1997-FY2002 includes System Operation) 60,000 BLOOM Harvesting the 50,000 flower of NASDAQ IPO Total Network Solution Transition Recurring revenue Provider 40,000 Change in Business Model 30,000 Birth 20,000 Earned its enduring Client Base Japanese Rapid Sudden 10,000 economy at Economic down turn bottom Recovery in economy 0 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 CWC filed for Rise in needs Increase in Heavy Price Merger of corporate for Cloud number of ISPs Competition corporate ISPs reorganization /Outsourcing 5
Recurring Business Model Cross Selling of Total Network Solutions • Application-related Development • Network-related Integration •Dedicated Line Connectivity On-line Security System Site-to-Site Network Construction IP Service (64kbps to over Gbps) Ticketing System Content Delivery Platform On-line Shopping System etc. etc. Email System for ISPs etc. •Broadband Connectivity Optical Fiber ADSL •Mobile Connectivity (IIJ Mobile) 3G/DSDPA Systems Construction Internet Connectivity Service Over 6,500 Outsourcing & Client Base Systems Operation •Network Related •Server Related Managed Router Service •Security Related •Data Center Related SMF-VPN Solution Web Hosting Service Managed Firewall Service Facility Management IIJ Internet-LAN Service etc. Email Service URL Filtering Service Operation etc. DNS Service DDoS Solution etc. •Customer Support File Exchange Service etc. •IIJ GIO (Cloud Service) 6
Excellent Blue-chip Client Base Enduring Relationship with Top Tiers leading companies 10/10 10/10 9/10 Electronic Electronic Information/ Information/ Wholesale Wholesale appliances appliances telecommunications telecommunications 9/10 9/10 10/10 Precision Precision Machinery Machinery Banks Banks Equipment Equipment The Yomiuri 9/10 7/10 8/10 Shimbun Imperial Household Securities Securities Insurance Insurance National Police Construction Construction Agency Agency Ministry of Ministry of Environment • The number of contracts we have among 10 major companies Justice listed by annual consolidated revenue in each industry. • Revenue data based on Toyo Keizai Shimpo “Kaisha Shikiho,” and Nihon Keizai Shimbun “Nikkei Industry Map” and more… 7
Broad Client Base Revenue Distribution by Revenue Distribution by Industry Clients Construction Retail 3% 6% 2% 6% Top 1-100 Top 501- Government/ 8% Top 501- Public sector 19% 8% Top 401-500 Machinery/ 4% Top 401-500 37% Manufacturing 9% Communication/IT 51% of revenue 10% 37% from Top 301-400 T op 301-400 5% Top 1-100 Clients Financial Top 201-300 sector Top 201-300 Media/Service 10% 7% 10% 27% Top 101-200 Top 101-200 14% 27% Source: IIJ’s non-consolidated data for FY2009 Source: IIJ’s consolidated data for FY2009 •Not dependent on specific industry •Not dependent on specific company 8
Solid Growth Model Revenues by Customer (JPY million) Customer Retention Strategy Increase revenue per customer Cross Selling of Services Provide high quality/reliable total network solution Introduce new services Increase recurring revenues for Stable revenues and profit growth Number of Customers (~6,500) • IT market growth to continue • Rise in demands from Outsourcing/Cloud Computing • IT spending is indispensable in the mid/long term 9
Current Business Situation Opportunities Threats Opportunities Threats Enlarging Enlarging Emerging Cloud Downward Emerging Cloud Recession Outsourcing Market Outsourcing Market Price Pressure Computing Market Computing Market Withheld Demands Withheld Demands Further cut back for System Investment for System Investment on IT spending Economic Recovery Economic Recovery 1H FY2010 Summary • The Japanese economy is currently at a standstill and is expected to continue to be weak • IIJ’s business: Outsourcing service revenues are steadily growing. Cloud computing starting up good. Data center, CDN, email, security related services are accumulating • SI is still weak • M&A: Acquisition of IIJ-Global Solutions Inc. (“IIJ-GS”) on September 1, 2010 Purchase price: JPY9.2 billion Acquired approx. 1,600 corporate customers. Group synergy in progress. Revenue and OP related to IIJ-GS: JPY2.2 billion, JPY0.3 billion • Full FY2010 financial target remain unchanged 10
Future Growth Opportunities And Recent Business Developments
Growth Opportunity Awaits Ahead Growth Opportunities Best positioned Connectivity Service with growing IT • Increase in bandwidth (over Gbps) demands • Contents Delivery Network • Mobile data service (emergence of Solid M2M market) • IPv6 Growth Model Outsourcing Service • Security Services (DDoS, Spam, etc) IIJ’s Strength M&A: IIJ Global Solutions • Cloud Computing Services • Acquired network outsourcing • Strong Technical Skills • Data Center Market Growth business in Japan from AT&T • High Reputation in Japan Reliability • Expand Scale of Group Business Systems Integration • Established brand within the • Acquire 1,600 Corporate Clients • Return of Mid-sized network IT market integration projects • Strong Relationship with IBM • Enduring relationship with • “Cloud Computing” related SI blue-chip companies • Expand Service Scope • New strategic IT investments for • Decentralized Customer • Enforce Sales Force Japanese companies Distribution • Improve Service Range Total Network Solution Provider Cross Selling Strategy to over 7,800 Clients (6,500 → 7,800) 12
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